In July of last year, Parliament passed ground breaking tax exemptions to private equity and venture capital. Both fall under the broad category of private capital markets. As legal practitioners in this sector, we recognise two main categories in the capital markets space: public capital markets and private capital markets. Public capital markets include stock exchanges, the usual unit trusts that have become popular lately, and their fund managers, brokers, and dealers.
In contrast, private capital markets operate primarily through contractual arrangements and are not accessible to the general public. When seeking capital in private capital markets such as in the case of venture capital, a term sheet is executed between a venture capital and a startup. In January of this year, another significant event took place: The Minister of Justice, and the Uganda Registration Services Bureau (URSB) published the Partnerships Regulation 2025. While I have some reservations regarding specific technical aspects of these regulations, I find them largely acceptable. These regulations permit the legal use of investment vehicles such as Limited Partnerships, to establish venture capital funds in Uganda.
However, the income tax provisions only extend tax exemptions to private equity or venture capital funds that are regulated by the Capital Markets Authority (CMA). This requirement presents a challenge.
On January 24, the CMA gazetted the Capital Markets Authority (Licensing and Approval) Regulations, 2025, which aim to introduce the approval of private equity funds. It is important to note that private equity funds are neither approved nor regulated persons under the existing Act.
The CMA justifies these regulations based on Section 50 (5), but the vague and incidental clauses used to define who qualifies as a regulated or approved entity are concerning. This lack of clarity raises questions that may require judicial review.
In 2022, the Solicitor General provided guidance indicating that Parliament should first amend the principal Act, the Capital Markets Authority Act of 1996 (as amended in 2011 and 2016), to legally enable the CMA to introduce regulations regarding Private Equity Funds in Uganda.
Unlike the public capital markets, private capital markets require a more nuanced approach based on the level of market maturity and sophistication. Private capital markets are not regulated in the same manner as public capital markets, which offer securities to the general public.
In 2022 CMA imposed financial requirements that are unrealistic for private funds. Now you need paid-up capital requirement of Shs1.5 billion to set up a venture capital fund.
The question arises: what is this capital for? In capital markets, assets are not held in the same manner as they are by banks. It doesn’t make sense to provide tax benefits only to impose another form of unjustified capital requirements that aren’t grounded in gained market experience, which will have an effect on the ticket sizes venture capital funds can evacuate. Secondly, which investors is the CMA attempting to protect?
Venture capital funds already have sophisticated limited partners and capital call lines, who understand the risks they are undertaking and provide cash infusions accordingly, and these arrangements are normally contractual. CMA can only come in if there is a justified systemic risk.
Moreover, these regulations suggest that the CMA seems to be regulating investors, yet investors themselves are not regulated persons. This raises legal concerns. Tax exemptions in the private capital markets space will only make sense if the regulation is structured the right way, enough said.